September 28, 2016

Where are the jobs? Welcome to jobless growth

Where are the jobs?

Why is an economy apparently on the upswing not being able to generate enough new jobs? Welcome to jobless growth.
Every month, a million Indians become age-eligible to join the workforce, but the growth in jobs has not kept pace with the rising number of aspirants. The result: unemployment has been on the rise, despite India supposedly being one of the brighter spots in a slowing global economy.

The situation has only worsened since, thanks to weak industrial growth, a struggling agriculture sector with widespread drought, cost rationalisations in several sectors and the knock-on effect of a global slowdown. Also, traditionally labour-intensive industries are beginning to increasingly mechanise their operations. While it makes them more productive and profitable, it also shrinks job opportunities.

Many wonder why an economy supposedly growing at a rate of over 7 per cent is not creating enough jobs. Economists say this is because more work is now being done with fewer employees. "The economy is generating less jobs per unit of GDP," says D.K. Joshi, chief economist at ratings and research firm Crisil. Illustratively, in manufacturing, if 11 people were needed to execute a piece of work that generated Rs 1 million worth of industrial GDP a decade ago, today only six are needed. Joshi's verdict: "The economy has become less labour-absorbent."

Decoding India’s jobless growth
We often say that manufacturing should take greater responsibility of job creation as agriculture already employs over half of India’s workforce, and services can’t absorb the million youth who are joining it every month. The Centre is trying its best to push manufacturing through the Make in India initiative. But that doesn’t seem to be working, at least when it comes to job creation.

India is the fastest growing large economy, posting a growth rate of over 7 per cent, yet jobs are not growing as fast as GDP. What needs to be done to address the problem of jobless growth which, if not addressed, has the potential to turn India’s demographic dividend into demographic disaster?

Many think that lowering the cost of capital increases investment and that in turn automatically creates jobs. Unfortunately that’s not how it happens. Making capital artificially cheaper promotes its sub-optimal use in a labour abundant economy like India. It may induce adoption of labour-saving production technologies especially if labour laws are not business friendly; so does raising minimum wages without commensurate rise in productivity. That kills jobs.

India’s jobless growth is undermining its ability to reap the demographic dividend
The last quarterly survey by the Labour Bureau showed that India has never created so few jobs, since the survey started in 2009, as in 2015: Only 1.35 lakh jobs compared to more than nine lakh in 2011 and 4.19 lakh in 2013 in eight labour-intensive industries (the only ones that are surveyed).

These figures are particularly alarming since almost one million new people enter the job market every month.